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Trump power plan unlikely to make case for coal, utilities say

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Trump power plan unlikely to make case for coal, utilities say

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The coal-fired Plant Scherer, one of the nation's top carbon dioxide emitters, stands in the distance in Juliette, Ga., in June 2017. U.S. power generators have few plans to invest in new coal plants or existing facilities, a new survey of electric generators by S&P Global Market Intelligence found.
Source: Associated Press

After years of shying away from building new coal-fired generation, U.S. electric utilities remain cautious about investing in their existing coal fleets, despite the Trump administration's proposal to roll back Obama-era restrictions on carbon dioxide emissions.

S&P Global Market Intelligence identified the top owners of coal generation in the U.S. and attempted to contact each about potential efficiency improvement projects in light of the Affordable Clean Energy rule, or ACE rule, proposal aimed at eliminating barriers to investing in existing coal plants. Responses from about 20 electric utilities had several common themes: they already completed many improvements, remain cautious about the timing of the rule and are committed to shifting to cleaner generation.

The ACE rule is the Trump administration's replacement for the Clean Power Plan, a proposal introduced by the Obama administration to address climate change. Instead of directly placing limits on total power sector emissions, ACE instead encourages states to require efficiency improvements tailored to individual sources at existing coal-fired power plants to lower the emissions per unit of power generated.

However, several coal plant owners have said the rule does not change plans to retire existing units or encourage them to build new ones. Comments received from utilities suggest the new rule may also not do much to promote investment in the existing fleet.

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"We will continue to focus on retiring older, less-efficient, coal-fueled units; building advanced-technology natural gas units; and investing in cost-effective, zero-carbon renewable generation," WEC Energy Group Inc. spokeswoman Amy Jahns said. WEC serves four states in the Upper Midwest.

The U.S. Environmental Protection Agency's analysis of the ACE rule projects it will boost coal production for power sector use by 4.5% to 5.8% by 2025, while allowing for "small increases" in total emissions of carbon dioxide, sulfur dioxide and nitrogen oxides. The administration projects replacing the Clean Power Plan with the ACE proposal could lower U.S. retail electricity prices by 0.2% to 0.5% by 2025.

The rule aims to accomplish this with a number of "candidate technologies" that states would consider in establishing standards of performance for individual coal plants. The EPA identifies six different technologies states could require at existing coal plants and proposes to eliminate regulatory barriers to implementing those projects at existing plants.

Salt River Project, an Arizona utility provider, said it already "routinely considers" the potential for efficiency improvements at its generation facilities and does not see the ACE rule changing planned investments.

"Because gas generation continues to be significantly lower in cost than coal generation for the foreseeable future, we do not anticipate that we will invest in efficiency-related projects," Salt River Project spokesman Scott Harelson said.

A spokesman for Western utility PacifiCorp also said the long-term outlook for its six-state service territory "does not include plans to make any major steam turbine or generator upgrades over the next 10 years."

'Impractical' improvements?

The EPA could be overstating the existing coal fleet's potential for heat rate improvement projects by basing the rule on inefficient plants that have already retired, The Brattle Group wrote in a late August research note. Much of the existing fleet may have already deployed measures the EPA identified as the best systems of emission reduction where it made sense.

Some power companies made that argument when the EPA solicited comments on replacing the Clean Power Plan.

"Power plants are designed and built in such a way as to make significant efficiency improvements costly and difficult," FirstEnergy Corp. wrote in a February letter to the EPA. "[O]nly minor improvements can be expected for any given plant and even those improvements are subject to degradation and still subject to the impact of off-design operation."

The Coal Utilization Research Council made a similar statement in 2014 comments to the Obama EPA. The pro-coal organization noted utilities such as Southern Co. have an "aggressive program" to keep their fleet's heat rate as low as possible because the nature of the competitive wholesale market already incentivizes plants to implement efficiency improvements.

"Requiring additional improvements on top of such efforts is impractical, if not infeasible, and would penalize utilities for longstanding best practice programs already in place," the council wrote. The group in 2017 changed its name to the Carbon Utilization Research Council reflecting a broader mission

The ACE rule applies to coal-fired power plants larger than 25 MW. The EPA's regulatory analysis of the rule noted that coal units that came online after 1990 generally offered the smallest heat rate improvement potential, while utilities may be averse to large investments in plants that are too old.

While the rule technically applies to more than 300 coal plants in the U.S., fewer than 90 coal-fired power plants over 25 MW and with no announced plans to retire are less than 50 years old, built before 1990 and have installed controls to comply with mercury emissions standards, according to an S&P Global Market Intelligence analysis. The largest of those plants have capacity factors suggesting they have the potential to be dispatched more often, but several of those plants already have heat rates better than the median for coal plants larger than 1,000 MW.

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The spokesman for PacifiCorp noted that many of the plant efficiency improvements the EPA identified in the ACE plan had already been implemented at PacifiCorp and other operating companies belonging to parent company, Berkshire Hathaway Energy. CPS Energy said it "implemented cost-effective heat rate improvement projects" during the initial construction at many of its Texas power plants.

"Should we identify additional provisions that come from the ACE rule, we will explore those options in addition to identifying any new technology solutions," CPS Energy spokeswoman Melissa Sorola said.

On the other hand, Basin Electric Power Cooperative, which supports the ACE proposal, said it is imperative the EPA recognizes the sizable investments it has made in coal generation over the past decade to comply with environmental regulations.

"The Clean Power Plan would likely have resulted in closing these very same plants, significantly increasing electricity costs for our members as we would have continued to pay debt service on the closed plants as well as incur capital costs to build replacement generation," Basin Electric CEO and General Manager Paul Sukut said in a statement.

Too soon to gauge impact

The new rule is subject to a 60-day comment period, and finalization could take several months. The EPA is proposing to provide states three years to develop their plans, after which the EPA has 12 months to act on a state plan. If the state's plan is deemed a failure, the EPA would have two more years to issue a federal plan.

American Electric Power Co. Inc., which operates a portfolio of more than 14,000 MW of coal capacity, said it is therefore "too early to speculate about what impact the proposed rule could have on specific power plants." AES Corp., Entergy Corp., Southern, FirstEnergy, Duke Energy Corp. and Santee Cooper, known legally as South Carolina Public Service Authority, also said it is too early to determine the potential impacts from the rule.

"We may not have a full picture of the potential impact of the rule until several years from now," Duke Energy spokeswoman Shannon Brushe said.

The delay in rolling out the rule could prove detrimental to a coal sector Trump is trying to save. Utilities continue to announce coal retirements at a rapid pace, and the aging U.S. coal fleet has not seen a new coal plant added to its ranks in several years.

Even utilities with coal-heavy generation portfolios are shying away from new investment in the fuel. AEP "has no plans to invest in new coal-fueled generation," company spokeswoman Melissa McHenry said. Duke Energy said it currently has no plans to invest in new coal plants either.

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Going clean

Many power generators are simply reacting to customer demand to shift from coal generation to cleaner fuels. For example, CPS Energy, Xcel Energy Inc., Southern and Ameren Corp. subsidiary Ameren Missouri, known legally as Union Electric Co., all responded to S&P Global Market Intelligence's inquiry by highlighting a push to renewable or otherwise low- to no-carbon energy sources regardless of the ACE proposal.

Emblematic of the uphill battle the Trump administration faces in saving the coal industry, particularly under the cloud created by abundant and cheap natural gas, FirstEnergy recently said ACE does not change its plans to transfer or retire the 1,300-MW Pleasants coal plant in West Virginia. Just eight days after the rule was announced, FirstEnergy Solutions Corp. said it will shut down more than 4,000 MW of coal and oil capacity in Ohio and Pennsylvania by 2022.

Similarly, DTE Energy Co. broke ground on the new Blue Water Energy Center in Michigan the same day the administration rolled out the ACE rule. The natural gas-fired power plant, DTE Energy spokesman Brian Corbett said, will be the most efficient power plant in the state.

"We don't believe there needs to be a choice between a healthy environment and a healthy economy," Corbett said. "We can have both, if we invest in a smart way."